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AOL, Netscape deal hits snag

Acquisition discussions between America Online and Netscape Communications reportedly hit a snag because of a side deal involving Sun Microsystems.

Acquisition discussions between America Online and Netscape Communications hit a snag yesterday because of a side deal involving Sun Microsystems, according to reports.

While talks continued in an effort to finalize the $4.21 billion stock deal between the two Internet powerhouses, a rift developed between AOL and Sun over the payment Sun would need to make to AOL for access to Netscape technology, according to the Wall Street Journal and the Washington Post, citing people close to the deal.

Sources close to the talks said they are also working out Netscape's role in AOL management and on its board.

AOL wants to give license to Sun to market Netscape's lucrative enterprise software. But as compensation, AOL wants a cut of the revenue Sun earns. In addition, AOL wants Sun to guarantee a certain amount of revenue regardless of Sun's success in selling Netscape's software. The negotiations bogged down yesterday on how large that guarantee would be, according to the Post.

The talks between AOL and Netscape involve a stock swap, pooling-of-interests deal in which stockholders of Netscape would receive 0.45 shares of AOL common stock for each share of Netscape common stock.

The exchange values Netscape at $38.19 based on Friday's close of AOL's stock. That's nearly a $4 billion value for Netscape, but lower than its closing price Friday of $39.1875 per share.

A merged AOL and Netscape would result in an online powerhouse, combining AOL's 14 million subscriber service with a strongly branded Netscape portal site. The move would add bulk and muscle to both their services in the battle against Microsoft's MSN site.